HSBC, Wall Street's Brexit worries and sexual abuse in the City

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Welcome to Banking Weekly from the Financial Times with me, Patrick Jenkins. Joining me in the studio today are Martin Arnold, our banking editor, and Caroline Binham our financial regulation correspondent. Down the line from Zurich we have Laura Noonan our investment banking correspondent. And we've been talking to the policy chairman of the Corporation of London, Catherine McGuinness.

This week we'll be discussing HSBC and its week of two halves, also a look at what Wall Street thinks of Brexit on the evidence of Catherine McGuinness's trip from the Corporation of London to the US, and finally a look at The FT's new sexual discrimination poll and what it's telling us so far.

First though to HSBC. As I said a week of two halves last week. We had another scandal emerging or evidence of one. Maybe Caroline you could start off talking about that, and then we'll come to Martin and the rather more positive news that the bank was trying to convey a few days later.

Yeah, last week we saw Lord Hain, who has ties to South Africa but is the former Labour cabinet minister making some quite strong accusations against an unnamed bank-- however, we named it as HSBC-- regarding the fact that large transfers tied to the Gupta family, who are at the heart of the corruption scandal in South Africa, were allegedly ignored by HSBC back in the UK. They were flagged up internally within HSBC South Africa, but then allegedly were ignored by UK.

So Lord Hain has written to the treasury urging that the FCA and other authorities look at what he's described as possible criminal complicity. Lord Hain had already flagged up issues at both Standard Chartered and HSBC in relation to the Guptas a few weeks ago. However, they were more general in terms of allegations and more historic. So this really represents the stepping up of the accusations against HSBC in particular.

And the problem for the bank, really, is its earlier and separate deferred prosecution agreement with the US authorities back in 2012 for money laundering and sanctions breaches. So the issue for them is that if this is deemed a breach of that DPA, which is due to expire next year, that could be a real problem.

Let me bring Martin in at this point, first for a view about the seriousness of this case, and then maybe your reflections on what some people might call greenwashing when a few days later HSBC came out with an announcement that they were going to invest $100 billion in essentially green environmental initiatives.

Well, the bank is in the process of going through a change of leadership. And Stuart Gulliver is handing over in February as chief executive. And Douglas Flint has already handed over as chairman to Mark Tucker. John Flint is being promoted to take over as CEO. So this comes at a crucial point for HSBC.

And the deferred prosecution agreement that Caroline referred to is a five year deal with the Department of Justice in the US, due to expire at the start of next year. So again, a crucial point for the bank. We don't know the ins and outs of this. And by all accounts, the Gupta family used a very complex web of companies to handle their finances. So it's not clear how involved HSBC was in getting money out of South Africa. But if it's proved to be-- and as Lord Hain says, that he has proof that HSBC not only handled this money but also ignored internal warnings that it was doing so and that these were suspicious transactions, that's really quite damaging for HSBC given their history.

And I think it's really very negative for the new management team taking over, and for the old management team that are handing over, because they would have very much hope to hand over a clean slate to the new team, and therefore to be able to take this bank forward without some of these sort of legacy issues coming to haunt them, as they have haunted Gulliver and Flint for the past five years.

So no wonder they wanted to get a good news story out there a few days later with this $100 billion green initiative.

Yeah, the bank has promised $100 billion financed for low carbon technology and sustainable development by 2025 as part of a package of measures to strengthen its commitment to tackling climate change and other green goals. Unfortunately for the bank, its commitment to $100 billion is far less than the $200 billion of financing for clean energy that was promised earlier this year by rival JPMorgan Chase in the same time frame. So it's not doing as much as them. And it's also not going as far as other banks. It hasn't gone as far as Deutsche Bank or ING, for instance, which have adopted a worldwide ban on financing new coal-fired power plants in developing countries. HSBC says it won't finance coal mines and it won't finance coal-fired power plants in developed countries, but it is leaving itself the option to finance them in developing countries. And the excuse it gives for that is that it has a very strong presence in a lot of developing countries, and therefore to do this would be too wrenching.

It would lose a lot of money, in short. OK, well thanks for those reflections both. Let's move on to our second topic. Catherine McGuinness, who is the policy chair of the Corporation of London, is just back from her trip to the US where she was visiting policymakers and also representatives of the big banks. And she's come back with a pretty downbeat message about what Wall Street thinks of Brexit. In particular she says the level of worry there is increasing, particularly about a hard Brexit, a kind of disorganised departure from the European Union. And that was really the sentiment that she first expressed. Now Catherine McGuinness was speaking to me and a few other journalists at a restaurant in the City of London early on Tuesday, so do excuse the background noise.

We're going to have [INAUDIBLE] our regular engagement with the US. We were going at, well, at least twice a year, but probably more regularly. We met with regulators. I think you've seen the list of people we've met with, but it was a range from regulators to market participants. We met with ISDA and a number of them. And ISDA, the Swaps and Derivatives Association. And we met with the Treasury, very interesting.

I was out there in April just before I took office as chairman. Then there was curiosity about Brexit and what were we getting out to. This time, those who were involved in our sector, really there was concern about the possible implications. It was the fact that it's taking us and the EU 27 so long, the fact that this might have repercussions and implications beyond our borders, whether it's just disrupting markets or whether it's more significant than that. And as I say, it was a clear statement that people were not going to take sides, but they were watching and were concerned.

I think the fear of the hard, I think that's really absolutely right. The fear of a crash is rising.

Another point that Ms. McGuinness focused on was the interest that the US banks had in the so-called blueprint for a future UK-EU financial services deal that's been proposed by the IRSG lobby group. This is the thing that Mark Hoban, the former city minister, fronts. We've talked about it before on the podcast. And this is, as I say, a blueprint which they are hoping, certainly the City is hoping that the government takes up as a formal policy document or something close to it, and then uses that as a negotiation basis with the EU. Wall Street very much liked this idea, but as Catherine McGuinness explained, she is getting frustrated and they are getting frustrated at the slow progress of turning this blueprint into policy.

I have to say, as with anything on Brexit at the moment, fairly slowly. People who look into it in detail respect the work that's being done. But I think we still have a bit of work to do to get it centre stage.

Both domestically--

Both domestically and in Europe, yes.

But not being accepted as the blueprint for government policy?

Not yet. As I say, people have been positive. I mean, there are some in government who think that a simpler model might be possible. But I'm not sure that's right.

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I think there are still some who hope that an enhanced equivalents route might be possible. I think that if we want a really aspirational relationship which works for us and for Europe, then the proposal that's basically offering access is absolutely the best way forward.

My biggest concern, our biggest concern, the obvious concern at the moment is getting transition agreed as soon as possible, with sufficient clarity that people can then rely on it, that we need to really assume is possible.

Finally among the many topics that Catherine McGuinness covered was the state of UK politics and how frustrating the chaos within government is to the whole Brexit negotiation process.

I think this is a moment when the country needs strong leadership and a clear direction. I think it's quite difficult for a divided cabinet to get that. I think it's very unfortunate that these other scandals have emerged just at this particular moment. And I also think, as I've said consistently and as others, Paul [INAUDIBLE] and so on have said, although Brexit was plainly a political decision, this is a moment where we need a really strong element of pragmatism in our approach, because we need to look at the damage we're doing to-- damage we could do to jobs and the economy.

I mean, they are very warm when we talk to them, but we need action, not warm words. The same with the tone in the Florence speech, which was great and actually, it's a little bit more than just warm words because that has something changed the tone of the negotiations and the debate, and that's positive. But we need action. We really need progress. I mean, you will be fed up of hearing about the three Ts, the talent closing transition, but we really do need to see that.

Finally let's speak to Laura Noonan now, our investment bank correspondent, who's speaking down the line from Zurich. Laura, you've recently initiated a very interesting project, along with some colleagues here, to try and take the temperature of the City of London essentially as regards women in finance and the potential abuses that have taken place over years really, obviously looking at this in the light of Hollywood scandals, Westminster scandals. You launched this a couple of weeks ago. It's early days. But what have you found out so far?

The first thing to say is even though these are most commonly thought about as issues affecting women, we are soliciting and indeed getting responses from both men and women. So we define it pretty broadly. We're asking for anyone who has experience any kind of sexual misconduct or inappropriate sexual behaviour in the workforce to come forward. And we have had men come forward as well.

In terms of what we found out so far, from our initial research it does seem to be quite an issue in the industry. We've had a number of responses. We're into the tens of responses now. The issues highlighted range from the very severe end, which is stuff like actual sexual assault, to the opposite end of the spectrum, which would fall into common, people being advised to wear certain things, people being advised to be nice to certain clients, those kind of issues. So there really is a whole spectrum here.

And the litmus test we're asking people to use is, how do you experience anything or seen anything which you wouldn't want your own son or your own daughter to experience? And we find that when we phrase it that way, people actually think about things quite differently. There are behaviours people are fine with having experienced themselves, but they certainly wouldn't want their own children to have.

And I suppose we'll obviously update people on this as it progresses, and I'm sure you'll be writing up the results at some point. But in the meantime, it would obviously be good for anyone listening who has experienced this kind of thing to get in touch. What's the best way for them to do that?

How to reach us, we have a dedicated portal on the FT for that. If you go to FT.com/misconduct, you can reach us there. And you can email us in the strictest confidence, tell us about your experiences.

Well that's it for this week. All that's left me to do is to thank Martin and Caroline here in the studio, also Laura Noonan down the line from Zurich, and the contributions from Catherine McGuinness from the Corporation of London. Remember, you can keep up to date with all of the latest banking stories at FT.com/banking. Banking Weekly was produced by Fiona Symon. Until next week, goodbye.